Changes could prove costly for embedded generators

Blog

Posted on: 05/09/2016

Ofgem has recently published its proposals for dealing with what it believes are unfairly generous payments to embedded generators. SmartestEnergy’s Generation Sales Manager Iain Robertson urges generators to make their views known.

Energy regulator Ofgem is concerned that transmission network charging arrangements may give embedded generators an unfair advantage over those connected to the transmission system.

By generating during times of peak demand during winter, embedded generators are currently able to optimise the benefits they receive for not using the transmission system.

The increase in generators connecting to the distribution networks in recent years means the level of payments they receive under the Transmission Use of System Charges (TNUoS) arrangement has increased and is expected to rise further.

Ofgem is concerned this may now be outweighing the benefits that embedded generators bring to the system and has recently published an open letter regarding its plans to address the issue.

Although the regulator could have undertaken a Significant Code Review (SCR) to consider any changes to so-called embedded benefits in a more holistic manner, it says that time and financial pressures means it favours earlier action on this issue.

That means any changes will be made through modifications to the industry codes which will reassess how the charges are allocated amongst suppliers.

Ofgem has also raised concerns over other embedded benefits although they are seen as being of lower priority and will be addressed later in the autumn.

SmartestEnergy believes that such a piecemeal review of embedded benefits has the potential to create more distortions than it solves.

We feel a wide-ranging impact assessment is imperative along with analysis to ensure that the overall cost to consumers does not increase if embedded generation becomes more expensive or even unviable.

Ofgem is now asking for industry views on its proposals and it is important that embedded generators highlight the impact any changes will have on their business and to urge a more considered approach to reviewing charging arrangements which takes full account of the consequences.

If you would like to share your thoughts with us on the consultation or discuss how you may be impacted, please get in touch with your Account Manager.